What is the Difference Between a Shop Loan and a Personal Loan?

The key differences between a shop loan and a personal loan are related to purpose, amount, interest rates, repayment tenure, eligibility criteria and documentation.

• Purpose: Shop loans are meant for business purposes such as working capital, inventory purchase, shop renovation etc. Personal loans are unrestricted loans that can be used for any legal purpose - both business needs as well as personal needs like marriage, travel, medical treatment etc.
• Collateral: It is not mandatory to provide any collateral or security when taking a personal loan. Shop loans, because they are a type of business loan, often require pledging business assets like property, vehicles or inventory as collateral to secure the loan.
• Loan Amount: Personal loan amounts are usually lower based on the individual's income and repayment ability. Shop loans offer higher amounts based on the shop’s financials, capital requirements and expansion plans.
• Interest Rates: Interest rates for personal loans are primarily determined by the borrower’s credit score and financial profile. In contrast, shop loans generally come at lower interest rates due to their specific purpose as business financing. This makes them more accessible for shop owners looking to meet their working capital.
• Repayment Tenure: Personal loans usually have shorter 1-5-year repayment periods. Shop loans may allow longer tenures to match the operating cycles and cash flows.